UDR Inc. plans to place 19 apartment communities in a venture worth about $2 billion with Apollo-managed funds and affiliates, a deal that would provide equity funding while preserving UDR’s management role.
Apollo-managed funds and affiliates would invest $1.34 billion for roughly two-thirds ownership. UDR would retain the other third and consolidate the venture, while continuing to manage and operate the properties for an asset management fee.
The communities contain 7,059 homes and average 39 years in age. Once the deal is completed, its implied capitalization rate is expected to be about 6.0%.
UDR also would have a limited window to repurchase the Apollo investors’ stake beginning on the fifth anniversary of closing. If UDR exercises the repurchase option, the terms call for an expected fixed return of 7.00% to 7.50% for the Apollo investors.
UDR Chief Financial Officer Dave Bragg said, “UDR’s partnership with Apollo provides access to a new, low-cost permanent source of equity capital.” Bragg said UDR expects the transaction to add to earnings and plans to direct proceeds toward higher-growth assets, general corporate purposes and debt reduction.
Closing is expected Thursday, Oct. 29, subject to transaction documents and customary conditions.
